HOW SHADOW ENTERPRISING, GOVERNANCE, ANDENVIRONMENTAL TAXES SHAPE ENVIRONMENTALOUTCOMES

Abstract

This paper investigates the impact of shadow enterprising, governance and
environmental taxes on environmental outcomes. Ordinary Least Square
Regression is carried out on the data. Then the likelihood ratio test for
heteroskedasticity and test for serial autocorrelation by Wooldridge is
undertaken. Fixed effects and random effects are performed to remove
unobserved characteristics; then Hausman test is applied to check which test is
more efficient. Fixed effects proved to be more efficient, so further post
estimation technique was applied (Prais-Winsten regression). Specifically with
increase in shadow economy, environmental pollution rises, whereas with
increase in environmental taxes environmental pollution reduces. Environmental
taxes also cause informal economy to lessen, which as a result has a positive
impact on environment. This study implies that policy makers should formulate
policies that encourage firms to move towards formal sectors. Developing
countries, especially, should create harmony among their neighboring countries
in order to curtail